Oil PSUs are likely to bear the burden of the price cut of Rs 200 on LPG cylinders, widely seen as a pre-poll sop by the Modi government.

The move has kindled hopes of price cuts on diesel and petrol in the form of a duty reduction by the government.

Bumper earnings in the first five months of the current fiscal and international benchmark coming off its highs will help state-owned oil companies absorb the Rs 200 per cylinder cut in cooking gas LPG prices, sources said indicating there may be no government compensation for that.

On Tuesday, the government announced a Rs 200 per cylinder cut in the prices of domestic cooking gas to soften the impact of rising inflation on households as well as counter the promise of cheaper LPG made by the Congress party in the upcoming assembly elections.

This resulted in the price of a 14.2-kg LPG cylinder in Calcutta coming down to Rs 929 from Rs 1,129 earlier. For Ujjwala beneficiaries, the price will be Rs 729 after considering the continuing Rs 200 per cylinder subsidy.

State-owned Indian Oil Corporation, Bharat Petroleum Corporation Ltd and
Hindustan Petroleum Corporation Ltd posted bumper earnings in the April-June quarter and the trend is continuing in thereafter, government and industry sources said.

Share prices of all the three PSU refiners fell on Wednesday: The IOC scrip
fell 1.18 per cent to Rs 90.76 on the BSE, while BPCL fell 1.39 per cent to Rs 351.80. HPCL was down 2.44 per cent to Rs 257.50.

Also, Saudi CP — the price to which domestic LPG rates are benchmarked due to high import dependence — declined from $732 per tonne in March 2023 to $385 in July.

Rates have gone up in August to $464 per tonne but still provide enough cushion for oil companies to cut LPG prices, they said.

Oil minister Hardeep Singh Puri in television interviews on Wednesday said the three oil marketing companies cut the prices as “good corporate citizens” and the extension of “very healthy profits” of April-June (the first quarter of the current fiscal) in the following months will help their decision.

He, however, did not give a direct reply to questions on the government providing subsidy support for the decision.

Sources said the price cut is on oil companies and the government has so far not indicated any intention to provide for those.

Fuel prices

Brokerage firm Citi said the market focus might now turn towards possible petrol, diesel price cut. The brokerage, however, said that unlike in LPG, international prices do not give OMCs room to cut petrol,diesel retail prices on their own.

“Any potential fall in petrol,diesel prices may need to come via excise duty cuts. While the government estimates that the immediate fiscal cost of the LPG price cut is minimal,” Citi said.

Currently, the Centre levies the excise duty of Rs 15.80 per litre of diesel and Rs 19.90 for petrol.

The Centre has earned Rs 51,813 crore in excise duty on fuel in the first quarter of the current fiscal against Rs 61,228 crore a year ago. In the 2022-23, it earned Rs 3.19 lakh crore.

The average price Indian basket of crude in August so far is $86.34 per barrel. In May 2022, the average price of Indian basket of crude was $109.51 per barrel.

The ball set rolling with LPG cut has raised expectations that just before announcing the upcoming legislative assembly elections, the government may cut the excise duty on petrol and diesel.

The prices of these two fuels have not changed since May 2022.